Tuesday, May 4, 2010

Clean energy source for cars, tanks and trains. It is coming, it is behind the corner. It was interesting to explore this form of energy: an advanced shock absorber uses the bouncing and vibrations of the vehicle to pump a fluid through a hydraulic motor. The motor is coupled to a generator that produces electricity to drive accessories, relieve strain on the alternator, and charge the battery.

Monday, May 3, 2010

After a lot of squabbling, Pakistan now hopes to get the much-delayed $1.2 billion tranche from the IMF after its approval by the Fund’s executive board on May 14 in Washington.

Before the expected approval of the funds, Pakistan authorities under the fourth review need to draw a roadmap with the World Bank and the Asian Development Bank to eliminate electricity subsidies by August 2010.

This instalment was to be released after the completion of Dubai talks on February 15 but was delayed due to disagreement between the IMF and authorities on the observance of performance criteria. As a result, the country’s foreign exchange reserves slipped below $15 billion after many months.

The $11.3 billion IMF programme under the Standby Arrangement (SBA) is fully financed but Pakistan also needs crucial disbursements of external assistance, largely from the ADB, the World Bank and Friends of Democratic Pakistan.

The authorities and the IMF agree that the stabilisation programme has progressed well, with economic recovery under way and external sector position improving despite challenging circumstances. However, the fiscal deficit targets remained out of control in each of the first three quarters ending March 31.

Pakistan has sought at least two waivers from the IMF for slippages in important macroeconomic targets and requested modifications in future programme milestones. “We request waivers for non-observance for the end-March quantitative performance criteria on the overall budget deficit (excluding grants) and net government borrowing from the State Bank,” according to letter of intent (LoI) sent to the IMF board.

The government missed the adjusted end-March quantitative performance criteria on the fiscal deficit by 0.4 per cent of GDP on account of lower revenue and security-related expenditure and shortfalls in disbursement of IDP grants and pledges made at Tokyo. The government also missed the end-March quantitative performance criteria on net government borrowing from the central bank by 0.2 per cent of GDP due to delay in the disbursement of external financing.

The LoI said: “We also request (i) a modification of the end-June 2010 performance criteria for the budget deficit to increase the cumulative end-quarter ceilings by Rs22 billion (0.15 per cent of GDP) in order to allow space for urgent security outlays and avoid undue cuts in other priority spending, and (ii) a modification of the end-June 2010 performance criterion (raising the floor) for net foreign assets of the SBP by $300 million, taking into account our strengthened external position.”

The two sides agreed that reaching agreement on the 2010-11 budget and further progress on the July 1 introduction of VAT would be key issues for the fifth review. So far, Pakistan has received $6.4 billion under the IMF programme.

Pakistan authorities and the IMF staff agree that the stabilisation programme faced challenges because of slower than planned electricity reforms, delays in disbursements of pledged lenders’ support, revenue shortfalls and military operations, complicating the fiscal management.

Inflation has also picked up beyond target. The upward revised fiscal gap from 4.9 per cent to 5.1 per cent is to be met through higher than projected privatisation inflows which would more than compensate for foreign inflows because tax and non-tax revenues might be lower than targeted. The growth rate is anticipated to remain at around three or 3.3 per cent because the large-scale manufacturing has started to pick up after a protracted decline. Agriculture performance is mixed, with lower rice and sugarcane output, offset by a stable outlook for wheat and higher cotton output. Private sector credit growth has improved somewhat as businesses rebuild their working capital and financial and capital markets remain positive.

However, the growth outlook is subject to risk due to domestic security situation, erratic power supply and the current pace of global economic recovery. These factors would push annual consumer index up at 12 per cent. The current account deficit is expected to improve further to 3.75 per cent of GDP supported by lower imports despite higher oil prices, lower profit outflows and strong remittance inflows.

The government has assured the IMF that the integrated value added tax acts as introduced in the federal and provincial assemblies will be maintained. The integrated VAT regime will be implemented to avoid the problem of cascading and tax competition. The review of VAT law by the provincial and federal legislative committees would be completed by mid-May and it would be passed assemblies by May 31.

As preparatory step towards full implementation of VAT Act by July 1, 2010, the VAT regulations and zero rating would be issued 2-3 weeks after its enactment. A review of business processes, record keeping and design of forms will be integral component of the VAT regulations.

The government has also given an undertaking to the IMF to complete the transition to a single treasury account by June 2010. The government said it was collecting information on commercial bank deposits of federal entities and would have all non-own sources, non-security related cash balances transferred to the federal consolidated fund by the end of June and associated accounts closed.

“We will ensure that these transfers do not affect liquidity of the banking system. We will ensure that a minimum interest rate is received on all federal government deposits,” the S-MEFP said.

Privately, the authorities agree that the FBR would not be able to collect more than Rs1,350 billion by end of this fiscal year. The current year’s revenue target has already been slashed to Rs1,380 billion from Rs1,396 billion after partially taking into account a shortfall of 0.2 per cent of GDP in the first half of the fiscal year. The collection in the third quarter was short of target by over Rs25 billion.

The government has committed to redoubling its efforts to reduce the number of non-filers and under-reporting taxpayers. The FBR has sent around 200,000 letters to non-filers and under-reporters, resulting in additional 121,000 taxpayers filing their returns before the extended deadline of January 25, 2010.

The FBR would also focus on collection of tax arrears stuck with oil and insurance sectors. Banking and insurance sectors are being forced to pay their outstanding withholding taxes which have not been deposited through reconciliation of accounts.

About 900 companies and associations of persons have been identified for audit and 468 of them have been outsourced to the Institute of Chartered Accountants of Pakistan, along with auditing framework. Most of the audits are expected to be completed by June this year. The remaining will be conducted by the FBR and completed by the end of May.

Likewise, a comprehensive plan for nationwide rollout of poverty-scoreboard based targeting for the Benazir Income Support Programme (BISP) has been prepared with the help of the World Bank and the process for contracting firms will be completed by end-May. Delays in the rollout of the poverty scorecard system will slow delivery of BISP assistance and result in disbursement of about Rs50 billion, providing a saving of about Rs20 billion during the current year.

ISLAMABAD, May 2: When the government changed the service cadres of 505 senior officials of the customs and excise group to create Inland Revenue Service (IRS) a couple of months back, Federal Bureau of Revenue (FBR) Chairman Sohail Ahmad had described them as “lower than the lowest” for protesting in their personal interest.

A few months down the road, he found himself in the same imbroglio. He was junior to 14 grade-21 officers working already in the FBR when he took over the coveted post last year by superseding 25 officers of his own service cadre – District Management Group. He had very proudly told his colleagues that he had never challenged a government decision.

In the middle of budget preparations, Mr Ahmed has now sought four-month leave and indicated to leave the bureaucracy after being demoted to grade-21 following the implementation of the Supreme Court judgment. “He should respect the court decision and accept government orders to work in grade-21 as he had advised others to do a few months back,” a senior FBR official said.

But he is trying to pressure the government in the most crucial time of the fiscal year when the revenue collection machinery is going through reform process and the tax collection targets need to be met and future estimates to be finalised. It is not customary to have a change of guard at the FBR when budget exercise is in full swing but the government has been put in an awkward position through his smart move to get re-promoted before all others demoted, another officer said.

Addressing the officers of the income tax and customs and excise group recently, Mr Ahmad quoted the translation of a verse from the holy Quran that “Human beings have been allowed by God to become the best of best but they have also been allowed by God to become lower than the lowest.” And then he said the “low side is remaining focused on and getting too much into questions of your seniority and your career.”

Mr Ahmad had told the officers, including some of his seniors-in-the-past, that their concerns could be addressed by the anomalies committee or the service tribunal or even the courts: “But if you keep focused on this and start forgetting your main role for what the government has recruited you, you will not be doing the duty…it is not just rising in life, fine, in terms of status and grades but also, you know, serving the country, serving the government…even senior officers, some of you are doing this. So this is what I see as lower than the lowest,” transcripts of his speech available with Dawn reveal.

Speaking about the concerns shown by the disgruntled officers for losing seniority and career progression, the chairman FBR had advised them to speak their minds at different forums but once the decision has been taken, they have to comply and should not raise questions of national interest because that was the job of the government to determine.

Discouraging the officers to challenge government decisions about merger of various cadres of the FBR, he said the government has absolutely all the right to design in any way its functioning, reorder its functioning, within FBR and even outside FBR. “I do not think that any court of law can challenge this, right of the government to re-order the way it transacts its business. What you can probably challenge is my seniority, my promotion, my merit. Your merit finished once you enter the civil service.”

The FBR chief had also criticised the officers for being engaged in the questions of promotions and seniority and said: “I have not done that in all my life”.

It may just be a turn of destiny that he had to do all those things he had advised others not to do and that he had “not done in all his life.”

ISLAMABAD, May 2: When the government changed the service cadres of 505 senior officials of the customs and excise group to create Inland Revenue Service (IRS) a couple of months back, Federal Bureau of Revenue (FBR) Chairman Sohail Ahmad had described them as “lower than the lowest” for protesting in their personal interest.

A few months down the road, he found himself in the same imbroglio. He was junior to 14 grade-21 officers working already in the FBR when he took over the coveted post last year by superseding 25 officers of his own service cadre – District Management Group. He had very proudly told his colleagues that he had never challenged a government decision.

In the middle of budget preparations, Mr Ahmed has now sought four-month leave and indicated to leave the bureaucracy after being demoted to grade-21 following the implementation of the Supreme Court judgment. “He should respect the court decision and accept government orders to work in grade-21 as he had advised others to do a few months back,” a senior FBR official said.

But he is trying to pressure the government in the most crucial time of the fiscal year when the revenue collection machinery is going through reform process and the tax collection targets need to be met and future estimates to be finalised. It is not customary to have a change of guard at the FBR when budget exercise is in full swing but the government has been put in an awkward position through his smart move to get re-promoted before all others demoted, another officer said.

Addressing the officers of the income tax and customs and excise group recently, Mr Ahmad quoted the translation of a verse from the holy Quran that “Human beings have been allowed by God to become the best of best but they have also been allowed by God to become lower than the lowest.” And then he said the “low side is remaining focused on and getting too much into questions of your seniority and your career.”

Mr Ahmad had told the officers, including some of his seniors-in-the-past, that their concerns could be addressed by the anomalies committee or the service tribunal or even the courts: “But if you keep focused on this and start forgetting your main role for what the government has recruited you, you will not be doing the duty…it is not just rising in life, fine, in terms of status and grades but also, you know, serving the country, serving the government…even senior officers, some of you are doing this. So this is what I see as lower than the lowest,” transcripts of his speech available with Dawn reveal.

Speaking about the concerns shown by the disgruntled officers for losing seniority and career progression, the chairman FBR had advised them to speak their minds at different forums but once the decision has been taken, they have to comply and should not raise questions of national interest because that was the job of the government to determine.

Discouraging the officers to challenge government decisions about merger of various cadres of the FBR, he said the government has absolutely all the right to design in any way its functioning, reorder its functioning, within FBR and even outside FBR. “I do not think that any court of law can challenge this, right of the government to re-order the way it transacts its business. What you can probably challenge is my seniority, my promotion, my merit. Your merit finished once you enter the civil service.”

The FBR chief had also criticised the officers for being engaged in the questions of promotions and seniority and said: “I have not done that in all my life”.

It may just be a turn of destiny that he had to do all those things he had advised others not to do and that he had “not done in all his life.”

ISLAMABAD: Pakistan has finally decided to approach the International Court of Arbitration against construction of the controversial Kishanganga Hydropower Project by India in alleged violation of 1960 Indus Waters Treaty and has formed a team of legal experts to fight the case.

Informed sources told Dawn on Sunday that Professor Kaiyan Homi Kaikobad, an international legal expert of Pakistan origin, would lead the team at the International Court of Arbitration.

He will be assisted by officials of ministries of water and power, law and justice and foreign affairs and Pakistan’s permanent commissioner to the Indus Commission and a few Pakistani lawyers.

The sources said that a group of government officials had recommended that James Crawford be hired for the job because he had represented Pakistan before the neutral expert when Pakistan took its case on the controversial Baglihar project on the Chenab a few years ago. However, prime minister’s adviser on water resources Kamal Majidullah opposed the move saying the outcome of Baglihar case was generally not in Pakistan’s favour. The government is estimated to have allocated about $10 million for the case.

The sources said that India had almost completed the 22-km tunnel to divert Kishanganga (Neelum) waters to Wullar Lake in violation of the Indus Waters Treaty and was working to complete the 330MW project by 2016. If completed, the project would severely affect Pakistan’s rights over the river, reduce the river flows into Pakistan and minimise its power generation capacity of the 969MW Neelum Jhelum Hydropower project near Muzaffarabad in Azad Kashmir.

They said that Pakistan’s Permanent Indus Water Commissioner had requested the government in March last year to quickly take up the case with the International Court of Arbitration after all options at the level of Permanent Indus Commission had been exhausted. It, however, took the government more than 14 months to seriously consider the advice.

Meanwhile, the Indian government’s project update reveals that about 33 billion Indian rupees sanctioned for the 330MW Kishanganga project in January last year has been increased to Rs37 billion.

“Work has restarted after settlement of outstanding issues. The project is expected to be completed by January 2016,” Indian documents reveal.

Pakistan has been opposing the project for more than a decade because it could stop water flows into Jhelum river. Bilateral talks have so far failed to yield any result to Pakistan’s satisfaction. The sources said Pakistan might have already lost priority rights over the project “as this tunnel is the major component of the project”.

Like the Chenab, the Jhelum of which Neelum is an integral part belongs to Pakistan under the 1960 treaty. Under the treaty, India cannot divert waters from Jhelum and Chenab rivers.

The Kishanganga project is located about 160 kilometres upstream of Muzzafarabad and involves diversion of the Kishanganga or Neelum to a tributary named Bunar Madumati Nullah of the Jhelum through a 22-km tunnel. Its power house will be built near Bunkot and the water will be re-routed into the Jhelum river through Wullar Lake, drying up a long stretch of the river on the Pakistani side.

When completed, the project would reduce the flow (pressure) of the Neelum and decrease the power generation capability of Pakistan’s proposed 969-MW Neelum-Jhelum Hydropower Project by more than 20 per cent or about 100-MW.

India has continued with the work on the project despite serious objections by Pakistan that it could not allow even a minor diversion of the river. Pakistan first received reports about Indian intentions to develop the project in 1988 but India officially confirmed it in the mid-1990s.

The issue had been on the agenda of the Permanent Indus Commission for more than eight years now, the sources said. Pakistan is constructing its 969MW Neelum-Jhelum project, which also is expected to be completed by 2016. Under the treaty, India cannot change the flow of Jehlum river even for power generation that may affect any Pakistani power project. The treaty provides Pakistan exclusive rights to use the water of western rivers -- Indus, Jehlum and Chenab -- while eastern rivers -- Ravi, Sutlej and Beas -- have been assigned to India.

Mr Kaikobad who has done his PhD from London School of Economics is a fellow of Royal Geographical Society (FRGS). Formerly a legal adviser to the government of Bahrain, he is currently a professor of law and director of research at Brunel University.